AMID a takeover tussle for ailing Healthway Medical Corporation (HMC) that is heating up, Gateway Partners has revised its convertible notes deal with the private clinic operator to ensure it gets liquidity fast.
Sources close to the transaction told The Business Times that Gateway is removing the coupon for both the first and second tranches of S$10 million and S$60 million convertible notes respectively.
The revised terms also see that the S$10 million will now mature in five years instead of two and it will be unsecured as it will be released early.
In the original terms, there was a payable coupon of 12 per cent per annum for the first three months and 16.5 per cent per annum thereafter until maturity.
Previously, the entire S$70 million of convertible notes in both tranches was secured , as it was to be issued at the same time. The convertible notes can also be swapped for up to 90.17 per cent of HMC's existing share capital, or 47.4 per cent of its enlarged share capital.
The private equity fund is also understood to be changing the redemption premium to 6 per cent of internal rate of return (IRR) on the S$70 million principal, from the initial 25 per cent of S$70 million principal.
When it comes to board and governance rights, Gateway has also moved to soothe fears of a change of control in the original terms.
As part of the revised terms, Gateway will only appoint one non-executive director (NED) with the disbursement of the S$10 million, instead of two NEDs previously.
Its full governance rights will only kick in after shareholders' approval has been received and the S$60 million is disbursed.
Insiders said the revised terms are more favourable and are designed to provide a workable solution that can be implemented quickly, and thus obtain Singapore Exchange's (SGX) approval for the deal to go through.
SGX has been concerned that the original deal would constitute a change of control and had stepped in to require the company to seek shareholders' approval for the issuance of these notes.
Lippo Group, controlled by Indonesia's Riady family, had a day earlier offered a lifeline of S$10 million loan to HMC to pay its doctors and nurses.
The loan attracts a mere 5 per cent interest a year and is repayable after 12 months. But the loan will be secured against a general pledge over all of HMC's businesses and assets.
Besides that, Make Health Connect, the third-party administrator for 39 Healthway clinics, has made $600,000 in advance payments to Healthway to cover doctors from 39 clinics for two months.
Ministry of Manpower has said it will take appropriate action against HMC if it fails to fulfil its basic obligation to pay all its employees.
Following SGX's intervention, HMC had earlier been granted an extension of 14 days for it to continue its discussion with Gateway.
The grace period expires on March 23, two weeks from March 9 when Gateway was supposed to disburse the first tranche of notes to HMC.
Terence Wong, chief executive officer of Azure Capital, said that with Lippo's intervention, the risk to shareholders is a lot less, as some other parties would buy the stock.
The share price of HMC has been hovering at S$0.042 or above for the past month. Lippo, which has accumulated 21.9 per cent of total shares in HMC as of March 15, has earlier offered to buy up shares it does not own at S$0.042 each in cash.
The offer will help shareholders exit on attractive terms, it said, given the new shares to be issued in connection with the convertible notes, if and when fully issued, would dilute the shareholdings of shareholders.
This article was first published on March 20, 2017.
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